Question

Why is NPV equal to zero in an efficient market?

Answer #1

Prices of securities fully reflect available information

All investments in an efficient market are zero NPV investments.
Equivalently, because information is impounded in prices, investors
should be expected to earn a normal rate of return.

Firms should receive fair values for securities they sell.
Investors should not be fooled. Timing to sell securities should
not work.

These conditions imply that new information will be quickly reflected in prices. Furthermore, since new information, by definition, is unpredictable (arrives randomly), price changes will be unpredictable (random).

An efficient capital market is one in which:

Prices fully reflect all available information.

On average, the difference between the actual price and the
expected price, given investors information, is zero.

Prices would not change if everyone made public all the information
that they had.

I

why is the efficient level of pollution not zero? Under what
circumstances would the efficient level of pollution be equal to or
very close to zero? explain using graph/s

If a market is efficient, then the difference between the market
value of an investment and its cost is:
Select one:
a. Positive and greater than 1.
b. Equal to the risk-free rate of return.
c. Equal to the risk premium.
d. Zero.
e. Equal to the net present value of the cash inflows.

What is market efficiency? Do you think the market is efficient?
Why or why not? What investment strategy would you utilize if you
believe that the market is (not) efficient?

1.Should NPV decision be accepted when the net present value is
equal to zero?

Are sums of components? powers equal to zero? Why?

Is a market output that is less than the competitive output
efficient (efficient in output)? Explain why or why not. Is a
market output that is greater than the competitive output
efficient? Explain why or why not.

Explain what an efficient capital market is and why market
efficiency is important to financial managers.

Why Arbitrage Opportunities imply that the Efficient Market
Hypothesis hold ? Explain...

Explain how the efficient market hypothesis (EMH) may be
inconsistent with the ideal of a positive NPV project.

If a project has a net present value equal to zero, then:
Group of answer choices the project earns a return exactly equal
to the discount rate.
the total of the cash inflows must equal the initial cost of the
project.
a decrease in the project's initial cost will cause the project
to have a negative NPV.
any delay in receiving the projected cash inflows will cause the
project to have a positive NPV.
the project's PI must be also...

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